A Health Care Solution

In my last column, I argued that for all the undeniable woes of
the Republican Party, the unfurling of Obamacare represents a huge
vulnerability for Democrats. The Democratic health reform bill is
economically nonsensical and politically unpopular. A recent Rasmussen
poll found that 54 percent believe the law will damage the U.S. health
care system. Even among Democrats, support for the law is ebbing. In
February, a Kaiser Family Foundation poll found that only 57 percent of
Democrats (compared with 72 percent in November of 2012) support the law.

The battle over health care reform is not over. Yes, the 2012
election ensured that the law would not be repealed and replaced in 2013.
But when the American people are unhappy with a policy, they find a way to
alter it. Republicans can tie themselves in knots and consider abandoning
their principles on abortion, taxes, immigration or marriage (and perhaps
some of those positions require rethinking), but the health care issue is
pitched right over home plate.

Nearly every American is intimately concerned with the delivery of
health care. Choice and competition can deliver what Americans desire -- a
quality product at an affordable price. Before offering reform proposals,
Republicans need to be clear that they are not endorsing the status quo
ante.

The pre-Obamacare health care system was not a free market for
health care at all but a peculiar hybrid with distorting incentives
created by bad government policy. Because the government set wages and
prices during World War II, employers were not permitted to raise salaries
more than a set amount approved by National War Labor Board. Employers
resorted to providing fringe benefits, including health coverage, and the
IRS approved this workaround by treating fringe benefits differently from
wages. Thus was born the link between employment and health insurance.

Because it was a form of compensation and not true insurance,
health coverage became ever more expansive and expensive. Employees were
shielded from the true cost of what they were consuming and accordingly
failed to economize. If food were provided as a fringe benefit of
employment, we'd dine on Chateaubriand every night. States compounded the
problem in response to lobbying from particular providers, passing laws
that required all insurance policies to cover expensive services, such as
in vitro fertilization, pregnancy services, weight loss surgery and
alcohol and drug rehabilitation programs. Over the past 30 years, 1800
mandates have been adopted, driving up the cost of insurance. This was bad
enough for those with employer-provided insurance, but it hit those
purchasing insurance individually particularly hard.

The high cost of insurance drove many who were not covered by
employers to rely on hospital emergency rooms when they got sick. The
federal government ratified this by mandating that hospitals treat all
comers. Hospitals in turn charged more to their paying customers (i.e.
insurance companies and the government through Medicare and Medicaid) to
cover the costs of treating the uninsured. Rube Goldberg would be proud.

Medicare and Medicaid too have contributed to sharply rising
health care costs both because the population is aging and because the
programs' fee for service structure encourages overuse.

Smart conservative health policy analysts have proposed a way to
cut the Gordian knot -- Remove the tax deduction for health insurance
purchases from employers and give it to individuals. This was actually
candidate John McCain's proposal in 2008, though, as Yuval Levin (editor
of National Affairs and one of those smart analysts) noted ruefully,
"Nobody told John McCain." As Levin explains, if individuals were given a
$5,000 tax credit (fully refundable for those below the poverty line) for
the purchase of health insurance, insurance companies would compete to
provide excellent coverage for $5,000.

If, in addition, individuals were permitted to shop across state
lines for insurance, those states with fewer mandates would be able to
offer cheaper plans and would accordingly get more business. Replacing
traditional Medicare with premium support would encourage competition in
that market, as well.

Writing in National Affairs, James Capretta and Robert Moffit
summarized the ideal Republican approach this way: " ... The essential
common element is a move toward consumer control. Individuals would become
active, cost-conscious consumers looking for value in the health care
marketplace. This shift would, in turn, create tremendous incentives for
those delivering medical services to find better and less expensive ways
of caring for patients and keeping them well."

As Obamacare's rising costs and constricted choices alienate the
American people, Republicans should be ready with an alternative that is
market-oriented, assembled and on the launchpad.

Misc.

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